DALLAS — The Texas A&M University System has called off a plan to issue $106.7 million of revenue financing system refunding bonds, citing market conditions that precluded sufficient savings.
The 2009C refunding issue was originally part of an October deal that included $320 million of revenue bonds for new capital projects.
Maria Robinson, treasurer for the system, said the bonds could be issued at any time but are not expected to come before the end of the year.
“We’ll continue to monitor the situation,” she said. “We already have all the approvals we need.”
Proceeds from the issue would have been used to current and advance refund outstanding debt. A&M’s savings threshold is 3% savings on current and 5% on advance refunding, Robinson said.
“Because of a move in the market, none of the refundings met our savings threshold,” she said. “The market just moved away from us in those few days.”
With A&M’s decision, Fitch Ratings withdrew its triple-A rating on the bonds, adding that it would issue a new rating if the bonds are sold.
The bonds earned triple-A ratings across the board because they were backed by the Permanent University Fund, which provides bond insurance for the A&M and University of Texas systems, in addition to annual allocations.
Despite the adverse conditions for a refunding in October, Robinson said she was pleased with the rates the system earned on its new money system revenue bonds.
“When you can borrow money at an all-in interest cost of 4.19%, that’s pretty attractive,” she observed.
The negotiated deal with Barclays Capital as senior manager included $26 million of bonds maturing through 2039 with coupons of 5%. Those brought top yields of 4.43%.
Revenue finance system bonds are backed by most pledged revenues. Maximum annual debt service on RFS debt after the October issue will total approximately $153 million in fiscal year 2011, according to Fitch. That represents about 5% of fiscal 2008 revenues.
The Permanent University Fund provides insurance on bonds issued by the Texas A&M and University of Texas Systems. The PUF backing results in triple-A ratings for those bonds.
The PUF has made a strong comeback from its low of $8.8 billion last February, regaining nearly 15% to $9.5 billion as of Aug. 31. That still represents only 80% of its peak in August 2007, three months before the recession hit.
Despite its sharp investment slump, the PUF investments still outperformed other major university endowments, including that of Harvard University, the largest in the U.S.
